Guangzhou R&F sells assets to Country Garden for 10 billion yuan cash, ditching unit's IPO plan as funding crunch bites

surprise in 2017 as the 11th-hour buyer, Dalian Wanda Group, crackdown on debt-fuelled corporate takeovers

Guangzhou R&F Properties’ services unit has decided to sell three assets that form that core of a potential Hong Kong stock offer to a competitor for cash, seeking a bailout as the Chinese central bank’s crackdown on debt ceilings since August 2020 is starving companies of much-needed cash.

Country Garden Services Holdings, a unit of one of China’s largest property developers Country Garden Holdings, said it would pay 10 billion yuan (US$1.6 billion) to R&F Properties Services for three companies involved in property management and construction services in mainland China, according to a filing to the Hong Kong stock exchange.

The three companies – Guangzhou Tianli, Tianjin Huaxin and Datong Hengfu – were listed as core assets in the April draft of a stock offering prospectus by R&F Property Services, which proposed to raise between US$500 million and US$700 million in the third quarter in Hong Kong, according to a report by IFR. The listing plan was pending approval by the Hong Kong Exchanges and Clearing Limited (HKEX), the city’s bourse operator. R&F Property Services manages R&F’s real estate projects.

China’s property developers, in the second year of a crackdown on borrowings, are reaching deep into their portfolios to sell whatever assets – buildings, business units or land parcels – at their disposals to find cash to repay their debts and survive in one of the most capital-intensive industries. While all eyes are on China Evergrande Group’s estimated US$300 billion of outstanding liabilities, some analysts said they are glancing at R&F’s balance sheet, where 81 billion yuan of bonds, term loans and debt are due by 2028, according to Bloomberg’s data.

surprise in 2017 as the 11th-hour buyer, Dalian Wanda Group, crackdown on debt-fuelled corporate takeovers

Nanjing Road in Tianjin’s Heping district on June 4, 2007, where Guangzhou R&F Properties was developing schools, a hospital and gardens. Photo: Sandy Li.

The company’s credit rating outlook was cut by Fitch Ratings to “negative” on Monday. R&F’s most active dollar bonds due in November 2022 have declined to about 73 cents on the dollar from above par three month ago, when Evergrande’s latest debt woes intensified.

Like Evergrande, R&F has been trying to offload its residential, hotel and logistics assets to generate cash. The firm held 29 billion yuan of cash, including 16 billion yuan of restricted ones on June 30, according to its interim report. Its short-term debt, or borrowing due for repayment within 12 months, stood at 52 billion yuan.

surprise in 2017 as the 11th-hour buyer, Dalian Wanda Group, crackdown on debt-fuelled corporate takeovers

Zhang Li, co-chairman and co-founder of Guangzhou R&F Properties (centre) and Wang Jianlin, the chairman of Dalian Wanda Group (right), during a signing ceremony for the disposal of Wanda’s assets in Beijing on July 19, 2017. Photo: AFP

Li Sze Lim and Zhang Li, the two co-chairmen and largest shareholders of R&F, agreed to provide HK$8 billion in shareholders’ financing to tie the company over, according to a separate filing on Monday.

It was not that long ago that R&F was the white knight to another indebted borrower. Zhang sprang a surprise in 2017 as the 11th-hour buyer to take over 77 hotels from Dalian Wanda Group during China’s crackdown on debt-fuelled corporate takeovers. The deal, valued at 19.9 billion yuan, was the biggest real estate transaction at the time. R&F would top up its acquisitions six months later, paying£35.6 million (US$49.1 million) to buy 60 per cent of Wanda International Real Estate Investment, which was set up to invest in the Nine Elms project in southwest London.

It is unclear how R&F’s asset sales to Country Garden will affect the property services company’s IPO plan. After the deal, all three companies will be consolidated into Country Garden as subsidiaries, according to the statement.

“The acquisition will also enhance the group’s influence and competitiveness in the market, contribute to its long-term steady growth and help the group consolidate its leading position in the industry,” Country Garden said.

Country Garden will pay for its purchases in cash over four instalments, the final price still subject to certain performance guarantees by R&F Property Services. The management services company had 428 million yuan of assets in June, and its net profit tripled last year to 239.8 million yuan from 63.8 million yuan in 2019.

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